Thiel: Alibaba is "fundamentally a political investment" that I wouldn't make

By Michael Carney , written on September 17, 2014

From The News Desk

With Alibaba set to have the biggest IPO in history, investors around the world are looking to handicap the mysterious and largely misunderstood Chinese Internet company.

Speaking to CNN Money’s Erin Burnett yesterday, PayPal co-founder, early Facebook, LinkedIn, Palantir, and Yammer investor, and former PandoMonthly guest Peter Thiel expressed some not so enthusiastic views on the company.

Asked whether he would invest in the company’s public stock, Thiel says, “I would not, although I think it will probably go up some. They’re probably going to price it in such a way that it gets some sort of a pop.”

But it’s not the return potential that seemingly gives Thiel pause. It’s the uncertainty around Alibaba’s connection to (and dependency on) the Chinese government.

“I do think that the Chinese Internet has been largely off limits to Western investors, it’s been firewalled off,” Thiel says. “If you look at the world from the perspective of companies like Facebook or Google, places like Saudi Arabia and Iran are way more tolerant than China. You can get on Facebook in Saudi Arabia and you can’t get on it in China. So China is in this very weird category of its own.”

The Founders Fund and Clarium Capital founder goes on to say that Alibaba’s fate is tied to its ability to appease Chinese state officials.

“Alibaba is sort of this protected Chinese company – it will do well, but it is fundamentally a political entity that is somehow very deeply connected with the Chinese government,” Thiel says. “You’ll get a pop and you’ll do well if it continues to stay in the good graces of the Chinese government, but it’s fundamentally a political investment.”

Politics and investment are two categories that rarely overlap nicely. And, China in particular, has proven itself unpredictable and parochial in the way it manages the Internet. It’s no doubt in China’s best interest, both economically and politically, to see its homegrown corporate giant succeed on a global stage. But that notwithstanding, there remains the very valid concern this patriarch could one day impede Alibaba’s growth either domestically or abroad without warning or recourse. There are also concerns around accounting irregularities and loose corporate governance that have been raised by countless other Chinese company IPOs.

These are all issues that public company shareholders will need to think long and hard about before deciding to put their faith in Alibaba’s growth engine. For Thiel’s money, it’s a bet not worth making.